The Sec. 166 deduction — What you need to know about business bad debts
Abstract: When customers can’t pay up, it may be possible to deduct these bad debts under Internal Revenue Code (IRC) Section 166. But it’s important to understand what counts as partially or wholly worthless bad debt and how to claim the deduction. This article describes the different types of business bad debt and how the accounting method affects how it’s reported. But it’s better to avoid bad debt to begin with, so a sidebar offers three tips to improve collections.